Question

Total Demand for Private Goods vs Public Goods.

Consider the following individual demand functions:

Q₁ = 10 – P               Q₂ = 8 – P                  Q₃ = 7 - P

Rival & Excludable

1. Complete the following table assuming the product is rival and excludable:

Price ($) WTP	Q1	Q2	Q3	Total Demand
$10
9
8
7
6
5
4
3
2
1
0

WTP= willing to pay

Nonrival & Nonexcludable

2. If the above product becomes a public good, calculate the total demand for the product and complete the following table:

Quantity Demanded	Price (WTP)
1
2
3
4
5
6
7
8
9
10
11

Answer 1

Q1 = 10-P

Q2 = 8-P

Q3 = 7-P

When good is rival & excludable , this means that the good is private good. Then ,the market demand is calculated by summing the individual demand at particular price. By putting the values of P ,we get the individual demands as shown in the below table:

P	Q1	Q2	Q3	Total demand= Q1 + Q2 + Q3
10	0	0 because quantity cannot be negative.	0	0
9	1	0	0	1
8	2	0	0	2
7	3	1	0	4
6	4	2	1	7
5	5	3	2	10
4	6	4	3	13
3	7	5	4	16
2	8	6	5	19
1	9	7	6	22
0	10	8	7	25

When good is non rival and non excludable , this means that the good is a public good.Then , the market demand is calcuated by summing the individuals willingness to pay for a particular quantity of the good. By putting the values of Q ,we get the individual willingnees to pay and then summing it we get the total willingness to pay. This is shown in the table below:

Qd	P
1	(9+7+6)=22
2	(8+6+5)=19
3	(7+5+4)=16
4	(6+4+3)=13
5	(5+3+2)=10
6	(4+2+1)=7
7	(3+1+0)=4
8	(2+0+0)=2
9	(1+0+0)=1
10	(0+0+0)=0
11	(0+0+0)=0